1. In
the light of recent drilling activity in the waters around the
Falkland Islands, we asked witnesses from OSPRAG and Oil and Gas
UK whether the UK regulatory regime applied to drilling in that
area. There was a lack of clarity over responsibility for drilling
and oil response in the Falkland Islands. We recommend that the
Government clarify what regulatory regimes apply to drilling and
oil spill response in the Falkland Islands and who is responsible
for enforcing them. (Paragraph 22)

2. Oil company boards
lack members with environmental experience. The industry should
take steps to remedy this and the Government should encourage
them to do so. (Paragraph 30)

3. We conclude that
the UK has high offshore regulatory standards, as exemplified
by the Safety Case Regime that was set up in response to the Piper
Alpha tragedy in 1998. The UK regulatory framework is based on
flexible, goal-setting principles that are superior to those under
which the Deepwater Horizon operated.
(Paragraph 34)

4. Nevertheless, despite
the high regulatory standards in the UK we are concerned that
the offshore oil and gas industry is responding to disasters,
rather than anticipating worst-case scenarios and planning for
high-consequence, low-probability events. (Paragraph 35)

5. It is imperative
that there is someone offshore who has the authority to bring
a halt to drilling operations at any time, without recourse to
onshore management. We urge the Government to seek assurances
from industry that the prime duty of the people with whom this
responsibility rests is the safety of personnel and the protection
of the environment. (Paragraph 38)

6. Given that the
failure of the single blind-shear ram to fire on the Deepwater
Horizon's blowout preventer seems to have been one of the main
causes of the blowout of the Macondo well, we recommend that the
Health and Safety Executive specifically examine the case for
prescribing that blowout preventers on the UK Continental Shelf
are equipped with two blind shear rams. (Paragraph 45)

7. While the flexibility
of the UK safety regulation regime appears to have worked well,
we recommend that for fail-safe devices such as the blowout preventer
the Government should adopt minimum, prescriptive safety standards
or demonstrate that these would not be a cost-effective, last-resort
against disasters. (Paragraph 52)

8. We believe that
the Government must ensure that the UK offshore inspection regime
could not allow simple failuressuch as a battery with insufficient
chargeto go unchecked. (Paragraph 55)

9. Whilst there is
a risk of conflicts of interests affecting the judgement of independent
competent persons who assess the design of wells we have had no
evidence of such conflicts presented to us. (Paragraph 60)

10. We find some conflict
in the reports from the HSE about bullying and harassment on rigs
and the assurances of the industry that sincere whistleblowers
will be heard and protected. We recommend that the Government
should discuss with the industry and unions what further steps
are needed to prevent safety representatives from being or feeling
intimidated into not reporting a hazard, potential or otherwise.
(Paragraph 66)

11. It is important
and necessary that the offshore safety culture is cascaded throughout
the supply chain, from existing contractors at all levels, through
to new-entrants on to the UK Continental Shelf. (Paragraph 68)

12. There is both
risk and the advantage of competition where global oil and gas
companies operate to different standards when working in different
regulatory regimes. We recommend that the Government monitor any
changes in the US regulatory regime to see ifin the light
of the response to the Deepwater Horizon incidentthe US
establishes a new gold-standard of regulation, as the UK and Norway
did after the Piper Alpha tragedy. We would urge the Government
to work with regulators in other offshore oil and gas provinces
to ensure that the highest standards of safety can be achieved
globally through an exchange of best practice lessons. (Paragraph
72)

13. The Bly ReportBP's
internal investigation into the Deepwater Horizon incidentdoes
not contain a root-cause analysis of the events that led to the
blowout of the Macondo well, the loss of 11 men on the Deepwater
Horizon, and the release of 4.9 million barrels of oil into the
Gulf of Mexico. We urge the Government not to rely extensively
on the Bly Report, given the controversy surrounding the responsibility
for the incident and the design of the Macondo well, but rather
to consider its conclusions in parallel with the observations
of other companies involved with the incident, and with the recommendations
of US agencies investigating the incident. (Paragraph 78)

14. We believe that
the environmental impacts of a sub-sea well blowout need to be
understood and taken into account when a drilling licence is issued
in the UK. We urge the Government to ensure that the licensing
regime takes full account of high consequence, low probability
events. (Paragraph 79)

15. We recommend that
as part of the drilling-licence process, the Government require
companies to consider their responses to high-consequences, low-probability
eventssuch as a blowout. The Government should not automatically
accept claims that companies have mitigated away the risk of such
worst-case scenarios. We urge the Government to introduce this
requirement as drilling ventures into increasingly extreme environments.
(Paragraph 81)

16. Given the high
costs of the incident in the Gulf of Mexico, we believe that the
OPOL (Offshore Pollution Liability Association) limit of $250
million is insufficient. We are concerned that the OPOL provisions
only cover direct damage and also that the precise definition
of "direct damage" is unclear. While membership of OPOL
remains voluntarydespite it being a pre-requisite for a
licenceits voluntary nature weakens its legality and the
control and deployment of its funds. We believe this lack of legal
control will allow polluters to claim that damages to biodiversity
and ecosystems are indirect, and therefore do not qualify for
compensation. (Paragraph 90)

17. We conclude there
needs to be clarity on the identity and hierarchy of liable parties
to ensure that the Government, and hence the taxpayer, do not
have to pay for the consequences of offshore incidents. We conclude
that any lack of clarity on liability will inhibit the payment
of compensation to those affected by an offshore incident. We
recommend that it should be a requirement of the licensing process
that the licensee prove their ability to pay for the consequences
of any incident that could occur. We recognise that these measures
could add to the cost of investing in new UK oil and gas production
and urge the Treasury to reflect this when considering incentives
to such investments. (Paragraph 91)

18. We recommend that
the Government consider whether compulsory third-party insurance
should become a necessary requirement for small exploration and
production companies. (Paragraph 93)

19. We acknowledge
that oil spill response plans often share procedures for dealing
with oil spills. There is some concern that in the past this may
have led to a culture of copying-and-pasting rather than the production
of site-specific plans which recognise the drilling environment
and the risk of high-consequence, low-probability events. We recommend
the Government re-examine oil spill response plans to ensure that
this is not the case. (Paragraph 101)

20. We recommend that
the Government draw up clear guidelines on the sub-sea use of
dispersants in tackling oil spills, based on the best available
evidence of both their effectiveness and their environmental impact.
We also recommend the Government monitor the effects of sub-sea
dispersants in the Gulf of Mexico to inform these guidelines.
(Paragraph 108)

21. We recognise that
the UK's oil spill response system is robust and rightly focuses
on prevention, followed by containment and then clean-up. We welcome
the development of new capping and containment systems capable
of dealing with a sub-sea blowout. However, we feel that the absence
of these devices before the Macondo incident is indicative of
the industry's and the regulator's flawed approach to high-consequence,
low-probability events. Prevention is better than cure, and we
recommend once again the Government recognise that in its regulatory
regime these systems are not a substitute for fully functioning
blowout preventers. (Paragraph 111)

22. There are serious
doubts about the ability of oil spill response equipment to function
in the harsh environment of the open Atlantic in the West of Shetland.
We recommend that the Government ensures that any capping, containment
and clean-up systems are designed to take full account of the
harsh and challenging environment West of Shetland. (Paragraph
117)

23. We conclude thatas
it standsthe EU Environmental Liability Directive is unlikely
to bring to account those responsible for environmental damage
caused by an offshore incident such as happened in the Gulf of
Mexico. We recommend that the Government works with the EU to
ensure a new directive is drawn up that follows the polluter-pays
principle and unambiguously identifies who is responsible for
the remediation of any environmental damage. (Paragraph 122)

24. We utterly reject
calls for increased regulatory oversight from the European Commission.
We recommend that EU countries without a North Sea coastline should
not be involved with discussions on regulation of the offshore
industry on the UK Continental Shelf. (Paragraph 127)

25. We conclude that
a moratorium on offshore drilling in the UK Continental Shelf
would cause drilling rigs and expertise to migrate to other parts
of the globe. A moratorium on deepwater drilling would decrease
the UK's security of supply and increase the UK's reliance upon
imports of oil and gas. A moratorium could also harm the economies
of communities in Scotland who rely upon the UK offshore oil and
gas industry as well as the wider British economy to which the
industry makes a major contribution. There is insufficient evidence
of danger to support such a moratorium. We conclude that there
should not be a moratorium on deepwater drilling in the UK Continental
Shelf. (Paragraph 138)